By Tiernan Ray

Shares of BlackBerry (BBRY) are down 33 cents, or almost 4%, at $8.72, reversing earlier gains, after the company this morning missed analysts’ revenue estimates for its fiscal Q4 ended in February, but delivered a smaller-than-expected loss per share and said it is focused on getting to break-even on a cash flow basis by the end of the fiscal year starting this month, after burning through $533 million last quarter.

Sales in the quarter of $976 million fell short of the average $1.1 billion estimate on the Street, while the net loss of 8 cents was a lot better than consensus for a 55-cent loss per share.

CEO John Chen went on CNBC and Bloomberg following the report to discuss his focus on staffing up sales and engineering to support the roll out of new hardware later this year. BlackBerry is betting on a couple new handsets, “Jakarta,” or “Z3,” for the Indonesia market, and a new version of its top-tier phone known as the “Q20,” along with an update to its BES enterprise software, “BES 12,” as I reported last month during the company’s presentation at Mobile World Congress.

R.W. Baird’s William Power, reiterating a Neutral rating, and a $7 price target, cites “strong cost control” in the company’s beat on the bottom line, noting BlackBerry reduced operating expense spend by 30%. He also notes the cash burn was $300 million less than the prior quarter, but the revenue was “weak” as a result of pressure on both hardware and services sales.

Sales of 1.3 million handsets was below Power’s estimate for 1.7 million, and what he cites as the 1.8 million consensus.

Power notes the company’s betting on software and services, not hardware, to turn things around:

BBM monthly average users climbed 5 million sequentially to 85 million, which BBRY hopes to be able to monetize in the future. Though just 7% of revenue today, BBRY believes that its software and services revenue, driven by BBM, QNX and MDM, can be the key revenue driver in the future.

“The ability to meaningfully narrow BBRY’s losses via cost management while shoring up cash flow for more of the daunting parts of the strategic transition that lie ahead should resonate with investors.”

Regarding the hardware shortfall, Arcuri writes “BB10 smartphone demand continues to be almost non- existent,” with 67% of actual sell-through in the quarter being for the older, BlackBerry 7 OS models.

Arcuri estimates subscribers declined by 4 million in the quarter:

Service revenue declined ~14% q/q and ~43% y/y, to ~$546MM, in-line with our expectations. The company did not disclose subscriber base metrics in its FQ4:14 earnings release, but we estimate the Service installed base contracted by ~4MM q/q, to ~58MM, with ASPs now in the low $3/month range.

Jefferies & Co.’s Peter Misek was on CNBC a short while ago. He has a Hold rating on the shares, and an $8 price target. Misek emphasized that the shares seem to have little downside, while there are still some ways it could conceivably succeed:

We certainly believe there is a lot of value in the parts, and given they are no longer at risk of bankruptcy, chance of insolvency is low. But they’ve really got to see their services rebound, or see the handsets work.

Asked if Chen was making the right moves, Misek was quick to praise his actions:

Chen is absolutely doing the right thing. At one point they were manufacturing 2 million handsets a month and selling only a couple hundred thousand. That was staggering mis-management. These guys really saved it. It sounds like there are large customers or carriers that are going to make that minimum volume viable. Gross margins were much better than expected. If margins can go higher from here, even if sales continue to decline, I think they can turn it around in the medium to long term.

Asked when the stock might be a Buy, Misek replied,

If we can get a sense for the enterprise side stabilizing, and if there’s any hope for them monetizing their services platform, their unhackable network, if they were able to strike a deal with Google or one of these cloud providers, for a Snowden-proof service, then the stock would be a screaming buy. But the chances for success are low.

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There are 6 comments

MARCH 28, 2014 2:34 P.M.

Anonymous wrote:

dead money. deploy your capital somewhere else.

MARCH 28, 2014 2:37 P.M.

Anonymous wrote:

And as I said Earlier this AM when stock was up:
"I’d maintain that BBRYs results on exceeding earning expectations came from some odd accounting adjustments and the sale of real estate. Cash continues to burn lower and lower, Chen said BES12 full functionality could take til “end of year” and (on conf. call) Chen is backing down on getting out of the hardware business- they’re restatring production of the BOLD.
Theres desperation in the air.:

the fact that handset sales are of OS7 vs BB10 indicates its older handsets probably coming from outside mainstream markets. Which means sales will continue to drop and the brand isnt viable where it needs to be.
Chen is reversing on hardware decisions, allowing improtant projects (BES12) to slip and selling off assets wherever he can to paint a pretty picture on the books. I'm out.

MARCH 28, 2014 2:50 P.M.

Naz wrote:

BlackBerry Z30 most amazing smartphone, check it out

MARCH 28, 2014 3:07 P.M.

Anonymous wrote:

Just got myself a Z30. Wow.

Gave my wife my GS4 :)

MARCH 28, 2014 3:44 P.M.

John Chen can save Blackberry in one second. John. Who won the War of 1812? wrote:

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.